* STOXX 600 ends up 0.2 pct
* Banks hit 1-month high as Fed signals December hike
* Commerzbank buoyed by merger reports
* Siemens, Alstom rise on rail merger talk (Adds details, closing prices)
By Helen Reid
LONDON, Sept 21 (Reuters) - Banking shares drove European bourses higher on Thursday after the U.S. Federal Reserve signaled a likely December rate hike and announced it would begin trimming its balance sheet in October.
The pan-European STOXX 600 ended up 0.3 percent while euro zone stocks and blue-chips rose 0.4 percent as the U.S. central bank's optimism on the economy stoked renewed enthusiasm for financials and cyclical sectors in Europe.
"The market's reaction... is positive on the back of the Fed acting in line with expectations, and with that the market anticipates the Euro strength momentum to fade," said Britta Weidenbach, head of European equities at Deutsche Asset Management.
Banks, the biggest gainers from interest rate rises that cushion margins, jumped 1.4 percent to a one-month high on the prospect of the European Central Bank following the United States in bringing ultra-loose monetary policy to an end.
Analysts have been increasing their earnings expectations for European banks for much of the past 12 months.
"No one is expecting any big moves on the interest rate front in Europe but it's about the direction upwards, and that is good for financials which account for a big part of European indices," said Weidenbach.
Commerzbank rose 3.5 percent on reports of merger approaches.
Reuters reported on Wednesday UniCredit had approached Commerzbank for a possible merger, and German weekly WirtschaftsWoche on Thursday said the government favours a merger of the state-backed bank with France's BNP Paribas .
BNP shares rose 1 percent while Unicredit was up 2 percent.
Merger and acquisition activity continued to drive shares with Irish building materials firm CRH rising 3 percent, bolstering the construction sector, after it agreed to buy U.S. cement maker Ash Grove Cement Co.
Siemens rose 1.3 percent after reports it is in talks to merge its rail business with that of either Alstom or Bombardier and will pick a preferred partner within days for further negotiations.
Alstom shot up 3.9 percent to a nine-week high.
Meanwhile, shares in Finnish power provider Fortum slipped 3.5 percent from a two-year high hit on Wednesday after it said it was in talks to buy E.ON's stake in Uniper.
"Fortum may have picked an opportune point in the cycle for its bid, although enthusiasm for the transaction banks on investors being willing to value Uniper's assets on a higher multiple within Fortum," Deutsche Bank analysts said in a note.
Troubled British outsourcer Capita slumped 11.6 percent to the bottom of the European index after first-half revenue declined and the hunt for a new CEO continued.
Reporting by Helen Reid and Danilo Masoni, editing by Kit Rees; editing by Mark Heinrich